HEXO: Why Did This Pot Stock Lose 11% Overnight?
The Canadian pot stock, Hexo Corp (NYSE: HEXO)(TSX: HEXO), lost close to 12% on June 17, 2020. The stark drop in this cannabis stock came after the company announced an at-the-market equity program on Wednesday.
Any new security issues through this program can potentially dilute investors’ equity holdings in this marijuana stock. Through this equity offering program, HEXO could issue up to CA$34.5 million worth of equity shares.
The at-the-market equity issue will be made from the company’s treasury as per the management discretion. It will be priced based on the existing market price at the time of issue and the equity program will lapse on or after December 21, 2020.
Hexo aims to use these cash proceeds to meet its working capital requirements, capital outlays, and capital investments, or for repaying its debt obligations. In its last week’s quarterly earnings release for the period ended April 30, Hexo Corp held a cash balance of CA$112 million.
Hexo closes sales agreement for Niagara cultivation facility
Hexo Corp issued another press release on June 17, 2020 announcing the completion of the sale agreement to sell its cultivation facility in Niagara, Ontario. The facility was valued at $10.25 million.
According to the press release, a portion of these proceeds will be diverted for expanding the facility in Belleville, Ontario. The balance proceeds could be used to improve HEXO’s working capital position as well as for other general purposes.
Hexo decided this course of action after strategically reviewing feasibility back in March of this year. The high cultivation capacity in the overall cannabis market coupled with a declining demand forecast for cannabis products hinted towards a declining market trend. As a countermeasure, HEXO decided to liquidate the land, greenhouse facilities as well as some of the equipment used in the Ontario cultivation facility.
A general overview of the Cannabis Sector in recent times
The cannabis industry has seen its fair share of woes during the Covid-19 pandemic outbreak and up to the last 18 months. Many of the cannabis indices and ETF’s holding hemp stocks have dropped considerably. The TSE Canadian Cannabis Index (INDEXTSI: XSCAN) is down by 33% year to date, whereas the Horizon Marijuana ETF (TSE: HMMJ) has lost a total of 14% since the beginning of the year.
Since inception in 2017, HMMJ ETF has negative returns of -32%. some sources claim that, in the month of May, investors in many large-cap hemp stocks decided to take a short position even when certain market leaders were trading at an all-time low.
HEXO: Why Did This Pot Stock Lose 11% Overnight?
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